UK retail sales unexpectedly fell in December despite heavy discounting.
The Office for National Statistics said sales fell 0.4 per cent last month, its weakest monthly showing since January 2007 and confounding forecasts for a 0.2 per cent rise.
That took the annual rate down to 2.7 per cent from a downwardly revised 4.2 per cent in November, its lowest since September 2006.
The pound fell and interest rate futures rose as investors bet Bank of England policymakers will not hesitate to lower borrowing costs in February as the economy slows in the wake of the global credit crunch and consumers feel the pinch.
The data was worse than economists had predicted, but trading updates from retail bellwethers Tesco and Marks and Spencer in the past two weeks indicated Christmas spending was hit by rising energy prices and weakening house markets.
The Bank of England cut borrowing costs by a quarter point to 5.5 per cent last month, and markets expect rates to fall another two to three times this year as signs of a slowing economy emerge across the board.